LOVE IT!!! PEhub busts pay-for-play "Hugh Sloan III"

I love this…

Go PEHUB!!!

j

http://www.pehub.com/64163/the-underbelly-of-silicon-valley-vc-finders/

Random Ramblings

We’ve spent lots of time here discussing pay-to-play, in the context
of public pension officials and the placement agents who bribe them.
But there is percolating pay-to-play issue that we’ve only mentioned
in passing: The issue of VC conference organizers who charge
entrepreneurs to make elevator pitches in front of potential
investors.

For the record, I agree with those who criticize such arrangements. VC
conference organizers should make their profits from sponsors, not
from struggling startups in need of cash. And, if sponsorship doesn’t
cover it, then also charge non-presenting attendees. For more on this,
you can read the vitriolic comment thread on Jason Mendelson’s Vox
Populi post from last week.

But I’m not raising this to discuss the pay-to-play conference
situation. Instead, I’m raising it to discuss something even more
insidious: Venture capital “finders.”

Last week, a Silicon Valley investor named Hugh Sloan III came across
a startup that had received a minor award from Microsoft. He emailed
the company founders, saying he had “3 ex Google angels and two Tier 1
venture funds who would be looking at this opportunity with me.”

Sounds great, except there was a giant catch: Sloan wanted $7,500
up-front, in order to set up the meetings. No refunds if the investors
didn’t offer term sheets.

The startup declined, and one of its execs even wrote a blog post
criticizing the approach (to put it mildly). Sloan immediately
responded, threatening legal action. The startup capitulated, and
pulled the post.

So I called Sloan, to get his side of the story. To give you a flavor
of our conversation, it began with him saying he had no idea who I was
or what I did. Fifteen minutes later, he “really respected” my work.
Make your own conclusions as to his sincerity.

Sloan defended his business practices, saying that he spends more time
working with “his” startups than do their own board members – adding
that $7,500 is actually a bargain. He also defended his threats to sue
the startup, but I couldn’t get an answer as to what his grounds would
be (since the post did not seem to contain any factual inaccuracies –
just some conclusions and adjectives to which Sloan objected). He
hemmed and hawed, finally admitting that it would be tough for a
startup to raise capital with “a legal claim hanging over its head.”
Lovely.

Of equal import, Sloan had sent the startup a resume that included a
few dozen VCs who “I speak with on a biweekly basis.” I reached out to
some of these contacts, and they each told me the same things: It’s
untrue.

One of them said he gets emails biweekly from Sloan, but has never
actually spoken to him. Another said he’s spoken with him once or
twice, but that it’s hardly a regular thing. A third wrote: “I’ve
never spoken to the guy. Absolute liar.”

I pressed Sloan on this issue, and he apparently believes two things:
(1) Sending an email to someone – without receiving a reply – is the
same thing as speaking to them. I’ll have to tell my corporate
overlords that I deserve a raise, given that I speak to 57,000 people
each day. (2) If Sloan is an angel in a deal later backed by a VC
firm, he therefore is in regular contact with the partner on that deal
(even if he isn’t).

To be clear, I am not suggesting that Sloan can’t set up the meetings
he promises. In fact, one of his references vouches for him on that
count (even though no deal resulted). Nor am I saying Sloan is the
only one engaged in such shenanigans.

Instead, I’m pointing out that pay-to-play is not just the purview of
state pension funds or mega-LBO pros. It also takes place in the
startup world, where the intended prey are young entrepreneurs in
search of first-time funding. And it deserves to be called out.

At least Hank Morris worked on commission.

One thought on “LOVE IT!!! PEhub busts pay-for-play "Hugh Sloan III"

  1. I just gave an entrepreneur 5 solid leads to 5 top level VC’s. With a lead in to ask if the VC was interested prior to the hand-off and a personal intro. How much did I charge? Zippy. I’ll also help with future advice…at the same rate!! Why? Because (like you) I start companies. These guys are slugs and thanks for calling them out.

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